So, what are the lowest income tax states? Let’s start with the nine states that don’t have state earned income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. But don’t be misled—no state is truly tax-free. Many of these states make up for it with higher property taxes, sales taxes, or other fees.
If you’re a high-income earner, these tax savings can be significant. For example, if you earn $250,000 a year, moving from Vermont—where you could be paying over $15,400 in state income taxes—to a state like New Hampshire with a 0% tax rate on earned income (excluding dividends and interest) could save you a big chunk of money. If you invest that savings annually with a 7% return, it could grow to over $213,000 in just 10 years!
Similarly, if you’re earning $100,000 and move from a high-tax state like Oregon to a no-income-tax state like Florida or Texas, you could save about $7,200 a year. But, be careful—a move from Nevada, which has no state income tax, to Utah, where taxes are higher, could cost you an extra $4,000 annually.
Source: Fidelity
Charts assume income of $100,000. All income is assumed to be ordinary income subject to income taxation. A FICA tax rate of 7.65%, federal income brackets and state income taxbrackets are used. We assume that state adjusted gross income (AGI) is the same as the federal AGI and that the only deduction that applies is federal standard deduction based on filing status. We assume further that the additional federal standard deduction for age is included, and no credits are claimed. All data is as of 2023. Tax law may have changed between 2023 and the publishing date of the article. The combined FICA, effective state and federal income tax rates for a single filer earning $100,000 of income vary from a high of 29.16% in Oregon to a low of 22.72% in North Dakota. For a married couple filing jointly with the same income, the combined effective state and federal income tax rates range from a high of 21.64% in Oregon to a low of 15.89% in North Dakota. Assuming $100,000 in annual earned income, the lowest-tax states offer a combined effective tax rate of 21.91% for single filers and 15.89% for married people filing.
Among states with income taxes, top marginal rates range from a high of 9.3% in California to a low of 1.95% in North Dakota for someone earning $100,000. But rather than focusing on top rates, it’s smarter to look at your effective combined state and federal tax rate—this is the percentage of your income that actually goes to taxes after deductions and credits.
Your marital status can also impact your tax rate. For example, Oregon has the highest effective tax rates for both single and married joint filers, while North Dakota offers some of the lowest. Surprisingly, California, despite its reputation for high taxes, can be a good option for married couples, with a competitive effective rate for joint filers.
If saving on taxes is your goal, Florida and Texas are strong contenders, even with their rising costs of living. North Dakota and Ohio are also tax-friendly options. And if you’re married and don’t mind paying some state income tax, California or even New Jersey might be worth considering.
But here’s something you might not expect based on those same income parameters:
- While the Northeast is known for high taxes, Oregon actually tops the list with the highest effective tax rates for both single and married joint filers. Hawaii isn’t far behind, with top rates of 28.27% for single filers and 20.44% for married filers.
- Minnesota, Maine, and Montana also make the top 10 list for the highest income tax rates for both single and married filers.
- California, despite being one of the most expensive states for single filers with an effective tax rate of 26.58%, ranks among the 20 best states for married couples filing jointly, with a rate of 17.58%.
- New Jersey and Rhode Island are among the states with the lowest effective tax rates for married filers.
- West Virginia lands in the middle for effective tax rates for both married couples filing jointly and single filers.
Source: Fidelity
Charts assume income of $100,000. All income is assumed to be ordinary income subject to income taxation. A FICA tax rate of 7.65%, federal income brackets and state income taxbrackets are used. We assume that state adjusted gross income (AGI) is the same as the federal AGI and that the only deduction that applies is federal standard deduction based on filing status. We assume further that the additional federal standard deduction for age is included, and no credits are claimed. All data is as of 2023. Tax law may have changed between 2023 and the publishing date of the article.
The bottom line is this: If you’re looking to keep more of what you earn, understanding these nuances can make a big difference. But remember, everyone’s tax situation is unique, so it’s always a good idea to consult with a financial or tax professional to figure out what’s best for you. And if you’d like to connect with retirement tax specialists, check out: www.TaxSmartRetiree.com.